A ‘resounding no’ to stagflation amid strong labor market: PNC Asset Management CIO

Investor concerns about the health of the overall economy were tentatively quelled from last week’s strong jobs report for the month of March. However, questions remain about the true strength of the economy amid slowing growth and resulting stagflation fears.

According to PNC (PNC) Asset Management Group Chief Investment Officer Amanda Agati, the answer to the question of looming stagflation is a “resounding no.”

“You just have to admit that the labor market is very strong here and very healthy,” Agati told Yahoo Finance Live. “Yes, there’s still room for recovery from here, but certainly very tight. And so in a stagflationary environment, we usually see a much weaker labor market and jobs backdrop than what we’re seeing today.”

And although Agati does not believe circumstances appear dire enough to begin sounding the stagflation alarm, she acknowledges that markets are entering a state of slowing growth.

“So, yes, we are in a slowing expansion phase of the cycle. We have to be honest about that,” she added. “The rate of change is certainly slowing, but with such a strong jobs report and a tight labor market, I don’t think we can say that it’s stagflationary at any time soon here, and certainly not as of today.”

Agati joined Yahoo Finance Live to discuss stagflation and the labor market in light of the strong jobs report for the month of March. PNC Asset Management Group, a member of The PNC Financial Services Group, Inc., is a relationship-based provider of investment, planning, banking, and fiduciary services to institutions and high-net-worth individuals.

The March jobs report saw a non-farm payrolls increase of 431,000 against an expected 490,000 and an upwardly revised 750,000 in February. The unemployment rate, however, came in lower than expected at 3.6% — down 0.2% from February’s 3.8% — against a forecasted 3.7%, marking the 15th consecutive month of expansion for the U.S. labor force.

Growing stagflation fears

Investors are becoming increasingly concerned about the consequences of sustained inflation and the Federal Reserve’s actions in order to combat it. Investing legend Bill Gross, best known for co-founding PIMCO, recently warned of the possibility of stagflation over the coming few years. The FOMC will convene again from May 3-4, when the next round of rate hikes is expected to further pump the brakes on surging prices.

“It’s hard to argue that anybody is getting by unscathed. I mean, we’re definitely seeing broad-based price increases across the board,” Agati said. “And so this is definitely a sustained inflationary environment. We had hoped at the beginning of the year that we were going to start to see by now more supply chain normalization to help take some of the inflationary fire out of the backdrop. Obviously, that is not materializing at all.”

Agati believes that the Q1 earnings season will be especially telling in how companies and the broader market are navigating elevated prices.

“We’re sitting at profitability levels that are basically at cycle, if not record, highs,” she added. “And so, the key will be, will companies have been able to pass through or continue to pass through price increases and maintain this profitability backdrop? Or are we going to start to see that pinch come into effect in earnings season?”

Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV

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